Many issues arise when I help clients structure incentive-based pay for their non-sales and sales teams. Many people get stuck in the middle. They focus on the compensation and not their business goals. Incentives that reward professionals who contribute to the achievement of strategic objectives are the right ones. Do not blame your reps; blame the plan. Keep in mind that not all businesses are “good business.” You must reward those who are essential to your strategic growth, whether they are expanding into new markets or growing existing accounts. These are just a few of the areas where you can improve your compensation plan.
Incentives should be tied to performance in the group, individual, and company. Minimum 50% of incentives should be connected directly to personal interpretation. We want to encourage team play. Maximizing your potential is possible only if your team meets its goals. The company also meets its goals. You can achieve your personal goals by working with your colleagues. This provides peer pressure to an underperforming member of the team. This encourages high-performing team members to assist less experienced ones. A bonus pool that can be shared among groups can promote a feeling of “what’s best for the company is good to me.” This is something many companies have lost.
Split the Pie
To capture business, there are several steps. The first step is to identify an opportunity. For technology and professional services companies, this is often done by an on-site professional, who may not be part of the business development team. Split the revenue pie to give a taste to those who are essential in opening and closing a business. The pie is usually divided into four segments: identification, buying vision, and execution. However, it is necessary to clearly define the criteria for earning credit. Your relative percentages may vary depending on the business.
Keep the bottom line in mind.
Let’s say your gross target margin for sales is 50%. Your sales rep will be paid 3% of gross. That’s a 6% profit. This can be dangerous for companies that pay top-line revenue. The company could lose more money from a discount than it would in commission. So, tie revenue recognition to discounting. Get 100% recognition if you sell at a total price. The revenue recognition drops as they offer discounts. They may not get credit for 70% of revenue if they offer 20% discounts. Reps must fight to maintain margin. However, selling and negotiating skills are not enough. Selling is not about being the lowest bidder.
Are reps who hit their numbers quarter after quarter more valuable than those who miss in alternating periods of time? Yes. My clients are encouraged to offer a kicker to anyone who hits their number in the last quarter. This allows reps to remain motivated and not get distracted by the comp plan. Significantly, do not limit incentive-based compensation for sales professionals. We know that incremental revenue is more profitable than first dollars if they are selling “good business.”
Make sure your incentives are simple to calculate. Your rep should be able to calculate the best incentives before leaving a meeting. These keys and other incentives will help keep your team focused.